Santos is poised to enjoy positive cash flows as its “game changing” Gladstone Liquefied Natural Gas (GLNG) project comes on stream but the low oil price will require cultural change inside the company to boost productivity, shareholders were told today.
The company’s annual general meeting in Adelaide this morning heard that the US$18.5 billion GLNG project is expected to produce its first LNG at the end of the third quarter this year, boosting Santos’s commitment to LNG with existing projects in Papua New Guinea and the Northern Territory.
Chief executive and managing director David Knox said the company’s LNG strategy over the past seven years “is beginning to transform the company’s revenues and cash flows”.
“The 2014 result reflects the start-up of PNG LNG and the strong continued operational performance from Darwin LNG. In 2015, at a widely forecast average oil price of US$60 per barrel, we expect to be free cash flow positive in the fourth quarter,” Knox said.
“With GLNG also operational and shipping LNG cargoes we will be free cash flow positive – after capital expenditure – for the full year in 2016 using the same oil price assumptions.
“This is clearly a substantial improvement in the company’s cash flow outlook despite the lower oil price environment that we are currently working within.”
Knox described GLNG as “a game-changer for Santos”.
“It underpins our strategy and once operational will confirm our position as a leading supplier of LNG into the Asian gas market with three operating LNG projects.
“All three projects are backed by long-term off-take agreements to high quality Asian buyers. Darwin LNG, PNG LNG and GLNG will provide the company with strong cash flows for decades to come.”
Knox added that the GLNG had also had a positive impact on the Cooper Basin.
“GLNG has facilitated the development of our coal seam gas fields in Queensland but it has also been an essential catalyst for the development of our wider east coast resources.
“It has exposed the Cooper Basin to new markets which has made continued development of the Cooper viable. This would not have been the case without GLNG.
“If Santos had remained as heavily focused on the domestic market as it was just 10 years ago, those resources would not be commercially viable today.”
Incoming chairman Peter Coates acknowledged the decline in Santos’s share price over the past year – down from around $15 in August last year to an opening price today of $8.35 a share.
“I will devote my absolute attention to ensuring that the investments we have made and the returns they are capable of producing are truly understood and reflected in the share price,” Coates told shareholders.
“The board is intent on ensuring Santos emerges from today’s oil price challenge as a more productive, agile and leaner business – a business that is not only viable at US$55 oil, but is competitive in any oil price environment.
“This will require a culture change within the organisation. It will require different decision making processes, and different ways of doing things.”
In his address, outgoing chairman Ken Borda said that “with the start-up of PNG LNG in the first-half of 2014 and receipt of first cash from the project, we were pleased to announce a 33 per cent increase in the interim dividend from 15 cents per share to 20 cents per share, fully franked”
“In light of the current oil price environment, the Board elected to maintain a cautious approach and set the final dividend at 15 cents per share, fully franked, he said.
“This is the responsible course of action and a decision that allows us to remain well-funded to continue with the execution of our strategy.”
